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VRAY: First Quarter 2017 Financial Results. Reiterating Annual Revenue Guidance

By Anita Dushyanth, PhD


On May 15, 2017 VRAY (NASDAQ:VRAY) announced first quarter 2017 earnings results.

Total revenue came out to $1.2 million, and recognized as service revenue. As per their previous guidance, ViewRay did not recognize revenue from the sale of any new MRIdian installations or shipments during Q1 2017.  Total operating expenses came in close to $11 million.  Excluding about $15 million of expense from changes in the fair value of warrant liability, net loss for the first quarter was $12.7 million, or $(0.24) per share.

The firm raised close to $48 million in cash in Q1 2017; approximately $26 million from a private placement (closed on January 18, 2017) of 8.6 million shares of common stock and warrants (exercise price of $3.17/share and are exercisable after six months and expire seven years from the date of issuance) and from the sale of approximately 4 million shares of common stock (in February and March 2017) to FBR Capital Markets & Co at an average market price of $5.64 per share, resulting in aggregate gross proceeds of approximately $22 million.  
Subsequent to quarter end, on April 13, 2017 ViewRay announced the closing of a $15 million loan expansion to its existing $50 million term loan agreement with CRG LP.  Modifications to the CRG loan agreement include addition of the $15 million available through September 30, 2017, availability of the existing $5 million through June 30, 2017 and extension of the interest-only and PIK period until March 31, 2020.  Other changes include lowering the combined 2016 and 2017 revenue covenant to $60 million (previously $80 million) and increasing the back-end facility fee between 1.5% to 1.75%.  As VRAY embarks on this next phase of growth, CRG LP continues to support their growth initiatives by providing the additional working capital through the non-dilutive financing alternative.  

The company received FDA clearance for the MRIdian Linac in February 2017.  This is a major leap forward for the company and allows them to offer the MRIdian Linac to a large customer base in the U.S. ViewRay received two new orders for MRIdian Linac systems in Q1 2017 totaling $12.3 million.  ViewRay also received three orders totaling $5.8 million to upgrade the currently installed Cobalt systems to Linac systems.  VRAY’s backlog of 25 signed orders as of Q1 2017 translates to a total value of ~$145 million that provides a significant lead to its competitors.  

In the first half of 2017, the firm anticipates selling MRIdian Cobalt systems in markets where Linac system is yet to be approved (primarily in China).  Management hopes to install seven to eight MRIdian Linac systems in the U.S. and international markets in the second half of 2017 from which the firm anticipates recognizing potential revenue of around $50 million in 2017.  Management is relentlessly working on improving their productivity.  Assuming a stable economic environment with no changes to currency levels, the firm anticipates widening product margins to 40% in 2018.  The stock price has more than doubled (133% increase) since the beginning of this year from $3.13/share (January 3, 2017) to $7.30/share (April 17, 2017).  We think that an expansion in gross margin, primarily driven by higher sales and operating leverage could drive the stock price even further.  

The MRIdian Linac offers several additional competitive advantages over its peers including compact design, easy installation, improved imaging and patient alignment, on-table adaptive treatment planning, motion management and an accurate recording of the delivered radiation dose.  Physicians have already used MRIdian to treat a broad spectrum of radiation therapy patients with more than 45 different types of cancer, as well as patients for whom radiation therapy was previously not an option.  Further, the company is backed by a seasoned management team.  

We are also encouraged by the compelling clinical data reported by MRIdian users at ESTRO 36, the annual meeting of the European Society for Radiotherapy and Oncology, in gastrointestinal, prostate and particularly pancreatic cancer.  The study compared SBRT treatments with and without on-table adaptive dose reshaping.  The study revealed that delivering a higher biological dose, using MRI-guided on-table adaptive radiotherapy, may lead to improved survival in locally advanced pancreatic cancer.  Early results illustrated MRIdian's ability to deliver high doses with low toxicity, using real-time tracking.  ViewRay plans to support a multi-institutional single-arm prospective clinical trial in unresectable pancreatic cancer to demonstrate the benefits of MRIdian's daily on-table adaptive SBRT and real-time tissue tracking capabilities, with a focus on toxicity, local cancer control and overall survival outcomes.

With a strong cash position, VRAY is well poised to carry on its business strategy.  We like the firm's strong balance sheet, with an estimated cash position of over $45 million.  We think 2017 could serve as a transformational year for VRAY assuming their financial guidance is met.  Currently, it takes roughly 100 days to complete installation and testing a single system per site.  The firm plans to bring this down to 45-60 days shortly.  If the sales continue with favorable momentum and the firm is able to sell close to five systems per quarter, it could potentially achieve operating profitability by 2019.  We think fundamentals remain strong and we continue to believe in VRAY’s story. 


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